Prior Franchise Tax Law

• According to the "Texas Franchise Tax for Reports Due On or Before December 31, 2007," the franchise tax was greater of .25 percent (.0025) per year of privilege period of net taxable capital or 4.5 percent (.0450) of net taxable earned surplus. Limited liability corporations, business trusts, joint ventures and business trusts had to pay the franchise tax.
  
  

Exemptions

• Sole proprietorships or businesses owned by a single person do not have to pay the franchise tax. General partnerships did not have to pay the franchise tax. Passive entities that generate almost all their income from rental income, mineral leases, interest income and real estate investments are exempt from the franchise tax. Businesses reorganized into partnerships could become exempt from the franchise tax.
  
  

2007 Law Change

• In 2007, Texas ended its franchise tax. The franchise tax was replaced with a business margin tax. The business margin tax went into effect on January 1, 2008. This margin tax was based on the business' margin of sales or income within Texas.